Turkish Central Bank cuts key rate further despite lira slump

Turkish Central Bank cuts key rate further despite lira slump

Turkey's central bank slashed its policy rate by 100 basis points to 14% as expected on Thursday, carrying on with Turkish President Recep Tayyip Erdogan's plan even after inflation jumped above 21% and the currency spiraled to all-time lows.

“The Committee decided to complete the use of the limited room implied by transitory effects of supply-side factors and other factors beyond monetary policy’s control on price increases and reduced the policy rate by 100 basis points,” the bank said in its statement accompanying the rate decision. 

The monetary authority said it will monitor the cumulative impact of recent policy decisions in the first quarter of 2022. 

The lira depreciated as much as 5.7% to 15.6583 per dollar after the decision and was trading 3.8% lower at 2:10 p.m. in Istanbul, Bloomberg reported.

The bank has now lowered the benchmark by 500 basis points since September, a period when most of counterparts were mulling or rolling out increases to tame a spike in price pressures. The cuts drove down the lira, which weakened past 15 per dollar for the first time on Thursday as investors anticipated another rate reduction. The currency’s lost about half its value this year.